Bank Of England Holds Interest Rates At 0.5%

10/05/2012 12:18
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Updated
10 May 2012

PA

The Bank of England held off from pumping more emergency cash into the economy today amid fears that inflation is not falling back as quickly as expected.

The most recent £50 billion injection into the Bank's quantitative easing (QE) programme took place in February but members of the monetary policy committee (MPC) have vetoed increasing the stock of asset purchases from £325 billion.

Interest rates were held at their record low of 0.5% but economists said the verdict of the nine-strong committee on QE would have been a close call. They think that a further round of QE could still take place by August.

Despite the UK's return to recession in the first quarter and renewed tensions in the eurozone, it is likely that members were influenced by inflation remaining stubbornly high at 3.5% in March, against expectations that it will meet the Government's 2% target by the end of this year.

Ian McCafferty, the CBI's chief economic adviser, said: "The combination of sluggish activity and sticky inflation put the MPC in a difficult position, and this decision is likely to have been a close call.

"But it appears that the persistence of inflationary pressures tilted the balance in favour of keeping the stock of asset purchases unchanged."

He said another round of QE cannot be ruled out but he remained hopeful that the UK's recovery will be on a firmer footing in the second half of the year, as inflation eases and the global economy strengthens.

Pressure for more stimulus measures has intensified amid the recent deepening in the eurozone crisis and after figures showed the UK in a technical recession, with gross domestic product declining 0.2% in the first three months of the year after a 0.3% drop in the final quarter of 2011.

Minutes of the Bank's April meeting showed a reluctance to increase QE, with arch-dove Adam Posen dropping his call for an extra £25 billion.

And the accuracy of official data has been called into question after a run of purchasing managers' surveys in the first three months of the year revealed decent growth in the manufacturing, construction and services sectors.